Truth Or Skepticism: Volatility as an Asset Class

Tom & Dylan kick off another segment of Truth or Skepticism by continuing their conversation of risk among the new generation in the work force. They also discuss the notion of using volatility instruments as a hedge, OPEC relevancy, bonds & China. Check out the preview below:

Risk & The Younger Demographic

Don’t settle for mediocrity at 22.

— Tom Sosnoff

Dylan & Tom continue to challenge the younger generation to take on risk and not settle at an early age. Legacy systems are going away, and people are more concerned with their credit score than a solution to their financial futures. Tom believes the only solution is for the young generation to learn to take on risk.

You’ll never be given opportunity if you’re not exposed to risk.

— Dylan Ratigan

Volatility as an Asset Class

Fear is not dead, but fear can take a long nap.

— Dylan Ratigan

The guys discuss volatility products, and how one can trade them these days. Tom states how volatility products are highly leveraged and can be nice alternatives to classic hedges, but trading these in 2015 has been rough. Volatility is extremely low, and there seems to be no movement just yet.

Volatility as an asset class is here to stay.

— Tom Sosnoff

OPEC Relevancy

I think people that trade oil care that OPEC and everyone else create opportunity for them.

— Tom Sosnoff

Dylan asks if OPEC is relevant anymore, and Tom states that it absolutely is - but on the surface probably only to people that trade oil. Tom goes on to discuss how selling premium in oil has been a great trade this year, and also gives traders with smaller accounts opportunities to get into the game with smaller notional value underlyings.

They’re a price action provocateur.

— Dylan Ratigan

Are We Experiencing A Market Extreme?

Once you understand volatility you’ll see that when things get really cheap, that’s about the best measure of price extreme.

— Tom Sosnoff

Tom explains how he measures price extremes, and that is by volatility. Low levels of volatility indicate price extremes to him, and he believes we are right around the same point as we were in ‘08 prior to the pullback. Dylan asks how he is getting short, and Tom states that being short the physical underlying is probably the best play in the current environment.

Trading China

You had one, maybe a two week period to capitalize on it (FXI).

— Tom Sosnoff

Dylan wonders if the heights of china’s indexes are sustainable. Tom explains the inverted skew in FXI, and talks about how it’s hard to short Chinese stocks directly because they are hard or none to borrow. Chinese stocks that trade in Hong Kong may be easier to short.

It’s hard to imagine any market being able to almost triple it’s value over the course of 12 months.

— Dylan Ratigan

Bond Opportunity

The investment banks are behaving as if the rates will get hiked again.

— Dylan Ratigan

Tom & Dylan ponder on possibilities in the market, and Tom thinks bonds could be the next big opportunity. They discuss whether there will be a reaction in the market, or if the market will already price in a rate hike.

It’s a wonderful environment for gathering assets, but the question becomes, did they get ahead of themselves?

— Tom Sosnoff

Remember, this is only a snippet of the entire segment; be sure to watch the whole thing below!

To see earlier episodes of Truth or Skepticism with Dylan Ratigan, you can check them out here on the tastytrade archives!

Since Dylan last graced Chicago with his presence, markets have become a bit more choppy. Today’s Truth or Skepticism largely focused on potential opportunities and how Tom is positioning his portfolio.

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